Pork industry changes affecting
farmers/agribusinesses

Farmers and agribusinesses
are increasingly concerned that large scale hog facilities are adversely affecting
how they do business. To answer this concern, “focus group” meetings
were held around the state during the summer of 1997. Sessions were held
in Atlantic, Iowa Falls, Sioux Center, Manchester, and Washington.

Five focus groups involved
hog producers of various ages who finished from 800 to 5,000 hogs annually
(mostly farrow-to-finish). Another five focus groups involved agribusinesses
that represented the full range of inputs and services used by producers.

Producer
responses

All producers in the focus
groups expressed concerns that, because of industry changes, producers cannot
stay viable by doing business as usual. However, for the most part, independent
producers believe they will stay independent. In general the producers felt
the hog industry is important for their geographic area and that the economy
is in better shape because there is pork production in the region.

InputsProducers
prefer to purchase inputs locally. Those who purchase off-the-farm complete
feeds are most likely to purchase their feed locally. However, they will
not pay higher prices or accept lower quality or service just to stay local.

ExpansionSome farmers
said they would expand to allow family members to stay in farming. They will
expand, but mostly as technology allows them to produce more hogs with the
labor they have available. Some thought they would need to change their facilities
if they were going to adopt the leaner genetics preferred in the marketplace.
Some producers believe that, if they did not produce pork, they would have
to quit farming.

Industry changesProducers
were not happy with the changes taking place in the hog industry but recognized
some good aspects. Improved genetics and new facility technologies were areas
where they felt large producers had helped the industry. Several producers
thought they could use the technology introduced by the mega producers
and raise hogs cheaper than them because they do not have as much overhead.

Market accessThe major
fear expressed by most producers was a loss of market access. They fear packers
have (or will have) contracts with the mega producers and smaller producers
will not be able to market hogs competitively.

Regulation

Producers generally were
concerned about regulation. They recognize there needs to be restrictions
on locations of facilities and manure management, but they are concerned the
regulations will be so stringent that they will not be able to afford to comply.
They also fear that some geographic areas will have more lenient regulations,
and thus, a competitive advantage.

StructureMany producers
reported that the amount of farrowing is declining in their area. They thought
that more feeder pigs were coming into the area from out-of-state. They also
believed that the same number of hogs are being finished as in past years,
but by fewer people.

Agribusiness
responses

The agribusiness focus
groups reported dramatic changes in the hog industry. Many of the smaller
farmers are leaving the hog industry, and, at the same time, many large scale
finishing facilities being constructed. Very few young farmers are getting
into the business. Those that are tend to be contract finishers.

Many producers are getting
out of the farrowing business. The main reason given is the difficulty of
hiring reliable, skilled workers in this labor-intensive, high-skilled portion
of the industry. Finding good sources of feeder pigs is a critical concern
for many producers.

FeedFeed is
generally purchased locally unless it is mixed on the farm. Producers who
grind and mix on the farm, especially those who use a pre-mix and soybean
meal, are more likely to purchase their inputs from greater distances. These
people are very price conscious and expect good service. Timely delivery
of quality products is required. Many feed dealers are now providing auxiliary
services such as:

feeder pig procurement,

help in designing
and/or financing facilities,

network management,
and

help in securing
a long-term contract with a packer.

CreditCredit is
generally available for those producers who can show adequate cash flow or
who have other collateral to back loans for buildings. However, some local
banks do not have the lending capacity or choose not to participate in loans
for large facilities.

ServicesInsurance,
recordkeeping, and legal services have changed. This is probably due to the
advent of computers and the need to tailor services to meet the specific needs
of producers.

Livestock hauling is arranged
with local haulers by producers. Large producers normally have their own
trucks. Producers selling feeder pigs often deliver them using their own
equipment.

Veterinary services are
purchased locally by producers, but more of the work now falls into the consulting
category. Most producers do their own treatments and vaccinations with medication
purchased from a local veterinarian or other local supplier. Some common
medications are purchased at wholesale or from large cash-and-carry suppliers.

EquipmentEquipment
is generally purchased with the building. Repairs and replacements are purchased
from the original builder. Concrete and earth moving services are purchased
locally. Structural material is often brought in from longer distances.
Most of the time a local contractor does the building work for producers.
Many of the larger units use local contractors to construct the buildings
to their specifications.

ConclusionsOverall,
most agribusiness people felt that the loss of agricultural suppliers was
due more to the general reduction in the number of farmers than to changes
in the pork industry. The downward pressure on margins requires larger volumes
and the service and consultation needs of producers requires higher quality,
more costly people.

Many of the agribusiness
people expressed an interest in working with fewer but larger producers, and
negotiating longer-term contracts to facilitate their long-run business plans.

The agribusiness people
believed that local changes in pork production have been generally beneficial.
Many felt that, if changes are not made locally, pork production will move
to some other area of the state and depress the local business economy.

Implications

Both produces and agribusinesses
acknowledged that there are fewer farmers overall and fewer farmers raising
hogs. They also agree that this is not good news for businesses in rural
communities. But both groups believe there would be even fewer farmers without
the adoption of new technology and production systems.

ExpansionAmong producers
there appears to be a reluctance to expand beyond the point where someone
outside the family must be hired. This trend is very damaging to the farrowing
industry in the state. The loss of the farrowing industry is detrimental
to economic development efforts because the more labor-intensive farrowing
activities involve the higher skilled, better paying jobs in the hog industry.
The unwillingness to go outside the family also seems to be limiting the development
of effective networks among producers.

ServicesAgribusiness
is becoming more service-oriented in an attempt to build customer loyalty.
They see producers demanding service but not wanting to pay extra for it.
On the other hand, producers aren’t sure the service is worth the extra price.

Coordinated systemIn the future,
many agribusinesses expect to be part of a coordinated system where they will
need to provide a source of pigs to get the business of producers. As fewer
producers remain, agribusinesses also are likely to become integrated and
fewer independent agribusiness firms will remain.